VAT in Czechia: when to register and the rates

Value added tax touches almost every growing business. At the start you need not deal with it, but once turnover crosses the statutory threshold you become a VAT payer with all the obligations that entails. It therefore pays to know when registration occurs and what it involves.

Let's go through the rates, the thresholds for registration, the obligations of a payer and a few special regimes you will meet in practice.

VAT rates

Two value added tax rates apply in Czechia: a standard 21 %, covering most goods and services, and a reduced 12 %, into which selected items fall, such as food, medicines, books or certain services. Placing goods in the correct rate is the payer's responsibility and feeds into both the price and the return, so it pays to be clear where your products belong.

When you must register

Compulsory VAT registration arises after exceeding a turnover of CZK 2,000,000 over twelve consecutive calendar months — you then become a payer from 1 January of the following year. There is, however, a second, higher threshold: on exceeding a turnover of CZK 2,536,500 you become a payer the very next day. The application must be filed within 10 working days. You can also register voluntarily, which pays off for companies with many VAT-bearing inputs or trading mainly with payers.

As long as turnover stays below the threshold, you need not deal with VAT and invoice without it. Once you become a payer, however, you must charge VAT on all taxable supplies, and you cannot leave payer status at will — only under statutory conditions. It therefore pays to time the transition and prepare your invoicing and accounting for it.

Obligations of a VAT payer

A VAT payer files a tax return and a control statement by the 25th day after the end of the taxable period. The taxable period is a month, though companies with turnover up to CZK 10 million may file quarterly. The advantage of being a payer is the deduction of input VAT — the payer subtracts the tax paid on received invoices from the tax it remits, so it effectively remits only the difference. This is precisely why registration can be advantageous even voluntarily.

A non-payer, by contrast, does not charge or remit VAT, but also cannot deduct input tax. For a company dealing mainly with end consumers who are non-payers, non-payer status may be advantageous, whereas for a company trading mainly with payers it tends to be better to be a payer.

Special regimes

Besides the ordinary regime there are several special ones. Reverse charge applies, for example, to construction work — VAT is remitted by the recipient of the supply, not the supplier. The OSS regime simplifies remitting VAT on sales of goods to consumers in other EU countries above a threshold of EUR 10,000. And an identified person is a status for a non-payer who receives or provides services from the EU and must remit VAT on them without becoming a full payer.

Conclusion

The key figures are the rates of 21 % and 12 % and the turnover threshold of CZK 2,000,000 for compulsory registration. Being a payer brings regular returns and control statements, but also the right to deduct input VAT. How the taxation of a company's profit works is covered in the article corporate income tax for an s.r.o..

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